Juncker’s euro vision contest

The ink will have barely dried when Jean-Claude Juncker delivers his third State of the Union speech on Wednesday morning.

The president of the European Commission was drafting and redrafting his near 30-page, trilingual address (English, French, German) to MEPs late into Tuesday night. At 9am CET he will deliver the speech to parliamentarians in Strasbourg, kicking off the executive body’s legislative proposals for the year and putting forward the president’s views on just about everything.

While the precise contents of the speech remain a tightly guarded secret, Mr Juncker will touch upon common themes: bridging Europe’s east-west divide, stressing the importance of the rule of law, and strengthening the democratic accountability of EU institutions.

Where Brexit dominated last year’s speech, visions for a stronger monetary union were conspicuous by their absence. With the euro-area then still in the nascent stage of its now buoyant recovery, a defensive Mr Juncker intimated only at the “invisible economic benefits” that the single currency had bought to member states.

This year’s vintage will be a reversal. The future of the eurozone will be front and centre of Mr Juncker’s last major State of the Union address before his presidency begins to wind-down at the end of 2018. Brexit, meanwhile, is unlikely to get a look in.

His comments on the euro — still considered the high watermark of Europe’s common endeavours — will be closely scrutinised in the EU’s most important capitals: Paris and Berlin. But they will also be a message to non-euro countries like Poland, as certain benefits of the union are more clearly tied to the single currency.

The president is expected to make a nod to plans to create a European Monetary Fund, transforming the functions of the current European Stability Mechanism. But whether the Juncker version of the EMF is a German one (budget surveillance, conditions attached to money) or the French one (a de facto eurozone budgetary authority), remains to be seen.

The legal barriers to eurozone reform are high and the commission’s ambitions will probably be tempered by the nine to 12-month window of opportunity after Germany’s September election to manage the nitty gritty of proposing and enacting new legislation. Any grand vision of common fiscal capacity or new institutions will require treaty change, and thus referendum in many countries. Even less ambitious changes to the ESM will mean parliamentary votes in the Bundestag and a handful of northern European countries. For now, both seem a tall order.

The economic cycle may be conducive to getting back on track with “ever closer union” but the political cycle is not. In reality, any quantum leaps in economic and monetary union will happen long after Mr Juncker has left the stage.

Chart du jour: the pound’s pinch

Brexflation? With the exception of Estonia and Lithuania, the UK now has the highest inflation rate in the EU. At 2.9 per cent, consumer prices in the British economy are accelerating at their joint fastest pace in five years.

Inflation has been stoked by the pound’s weakness since the Brexit vote. Helpfully, sterling climbed to a 12-month high on the back of the inflation data as investors bet the Bank of England could start thinking about an interest rate rise.

The state of the rest of the union

Not so open for trade The FT has seen the latest EU plan for tough screening of foreign investment which includes an “anti-circumvention” clause to ensure Chinese and other foreign companies cannot use “artificial arrangements” — such as setting up a European shell company — to evade proposed new EU powers to block foreign takeovers.

Nem Nem Nem Budapest insists it will resist last week’s ECJ ruling on its refusal to participate in the EU programme to share refugees. Foreign minister Peter Szijjarto told the FT “the obligatory quota system is dangerous, it’s a pull factor, it’s unenforceable and it’s against common sense”.

75 and strong Wolfgang Schäuble will be celebrating his 75th birthday next week. But the veteran German finance minister has no plans to retire, and is “relishing” the opportunity to stick around for another five-year term in Germany’s second most important job, according to Noah Barkin at Reuters.

A fierce critic of fiscal transfers or risk-sharing in the eurozone, Mr Schäuble’s continued presence in the chancellery could well prove the most important variable in determining the future of the single currency in the years to come.

Italy unburdened Do not adjust your sets: Italy’s bad debt pile burden fell by a bumper €18bn between June and July — the sharpest monthly drop in nearly 20 years and a sure fire sign the recovery in the eurozone’s third-largest economy is having real benefits.

Polish ping-pong Brussels has escalated its long-running infringement procedures against Poland over the rule of law. As expected, the commission judged Warsaw’s response to its concerns over a series of judicial reforms as insufficient. The commission has now given the ruling Law & Justice party another month to address its worries.

Loi travail Up to 400,000 French workers were out on the streets in the first major show of force against the new government’s planned labour law reforms. Everything from slow-moving lorries to the occasional riot was on display in action co-ordinated by the country’s CGT trade union.

In the more cerebral setting of Bercy, France’s ministry of finance, the FT speaks to Benjamin Griveaux, one of the “Macron boys” charged with carrying out the new president’s economic transformation.

Bridges’ Brexit bridges Meanwhile Lord Bridges, the former Brexit minister, offers his own suggestions on how to leave the union with a smooth transition (as he jokes in the piece, for obvious reasons he likes bridges). He also notes the government’s position paper that is still missing:

“Much of the debate has been focused on the process of withdrawal, and how we are — to coin a phrase — to take back control from Brussels. But what are we going to do with these powers once we have that control? What kind of nation do we want to build? This question is unanswered. This dog has not barked. As Sherlock Holmes might remark, this is a ‘curious incident’.”

Taking Hartz Christian Odendahl examines the German socialist party’s bind over the country’s feted Hartz IV labour market reforms. Carried out under the chancellorship of socialist Gerhard Schröder in the early 2000s, Martin Schulz, current SPD leader, initially campaigned to repeal parts of the structural reform package but to no avail with voters.

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